SNB's Jordan Says Negative Rate Key, Further Easing Possible

  • Central bank implemented negative deposit rate of -0.75%
  • President Thomas Jordan speaks at business event in Aarau

The Swiss National Bank is able to ease policy further as its negative interest rate is “indispensable” for taking pressure off the franc, President Thomas Jordan said.

Any monetary policy action must be subject to a cost-benefit analysis, Jordan said, similar to what the SNB undertook when it decided to give up its cap on the franc last year.

“The central bank has further means of acting in an expansionary manner, but we also have to conduct a cost-benefit analysis as we did when we gave up the minimum exchange rate,” he said, speaking at a business event in Aarau, Switzerland, on Monday.

For more than a year the SNB has pursued a twin-pillar strategy of negative interest rates of minus 0.75 percent and a pledge to intervene in currency markets. Additional easing in the neighboring euro area has repeatedly sparked speculation among economists that the SNB may decide to lower rates further in a bid to maintain the interest rate differential. Analysts estimate the SNB could cut its deposit rate to as low as minus 1.25 percent if needed, according to Bloomberg’s most recent monthly survey.

The SNB stunned markets in January 2015 by giving up its cap on the franc of 1.20 per euro, saying the cost of maintaining it was out of proportion to its benefit to the economy.

“We still have a significantly overvalued franc,” Jordan said. “That means that we must continue our monetary policy of negative rates and a preparedness to intervene in currency markets.”

The franc traded little changed against the euro at 1.09167 at 8:09 a.m. in Zurich. It has depreciated 0.3 against the common currency this year.

At its most recent policy review on March 17 the SNB kept its deposit rate at a record low of minus 0.75 percent and repeated its pledge to intervene in currency markets. Citing a less favorable view of the global economy, it also lowered its prediction for Swiss growth this year to between 1 percent and 1.5 percent, from approximately 1.5 percent previously.

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